PARTNERING IN INDUSTRIAL ENVIRONMENTAL COMPLIANCE AUDITS
R.F. Chatfield-Taylor, Esq.1, and M.M. Katzman, P.G.2
1Morrison & Hecker L.L.P., 2600 Grand Avenue, Kansas City, MO 64108, Phone: (816) 691-2600; 2Environmental Resources Management, 8700 Indian Creek Parkway, Suite 330, Overland Park, KS 66210, Phone: (913) 661-0770
Industrial environmental compliance audits are complex reviews of the environmental procedures and manufacturing processes in use at a given facility. Effective compliance audits require a multi-discipline partnering approach to achieve sustainable results. Some audits fail to satisfy client expectations or accomplish the desired objectives when precise services either are not specified or when the specified scope of work is exceeded. Because unprotected audit reports can be obtained through the litigation process, absent a regulatory audit privilege, many industrial clients continue to view compliance audits with distrust. A partnering approach is advocated since a strong attorney-consultant-plant audit team appears to be the solution to this challenge, enabling the compliance audit to remain a useful management and environmental tool.
As a fact-finding process, partnering between attorneys, independent environmental consultants, and plant or corporate personnel may well be the most effective means for conducting the audit and accomplishing the audit goals. Industrial clients appear to be best served when the scope of an audit is well defined, when the audit is conducted in accordance with a specific structure or audit plan, and when audit teams are composed of knowledgeable and experienced personnel. Well-defined partnering agreements will meld the attorney-consultant-client team into a coherent unit, each contributing their specialty but working together to define and ameliorate specific challenges. The audit partnering plan must have sufficient flexibility to allow the team to investigate unanticipated conditions that may environmentally, legally, or operationally impact the plant.
This paper briefly reviews the social and regulatory background and rationale for the increase in industrial audits at both the plant and corporate level. The nature, extent and basic concepts of the compliance audit in industrial settings are briefly discussed. The audit partnering strategy is reviewed including the legal, operational, and scientific aspects of audit design; selection of audit procedures (ranging from plant observations to records reviews, and the use of checklists and written and verbal reports); the composition of the audit team; and the functions and obligations of the attorney, corporate, plant, and environmental consultant team members.
Keywords: compliance audit, partnering, management
Today, businesses conduct their operations against a background of highly complex and technical laws and regulations that govern everything from employee benefit plans to worker health and safety issues. Undoubtedly, one of the most heavily regulated aspects of a business's operations is the waste that it generates as a byproduct of its operations. Federal environmental statutes, such as the Resource Conservation and Recovery Act (RCRA), which governs the cradle-to-grave management of hazardous waste, impose detailed obligations on a business to characterize, document, manage, and dispose of its waste in an appropriate fashion. Faced with at least seven federal environmental laws, and the over 10,000 pages of regulations that accompany them, businesses must develop systems in order to ensure compliance. This task is made even more difficult when one considers the fact that individual states and municipalities also regulate in the environmental area, thus adding to the compliance challenge a business faces.
While the overwhelming amount of regulation may cause difficulties in attaining compliance, ignoring compliance obligations is fraught with danger. Virtually every piece of federal legislation and most state environmental statutes contain provisions which make the violation of those laws punishable through either a civil or criminal action. Because regulatory agencies are concerned that many companies view civil penalties as simply the cost of doing business, there is a trend toward the use of criminal sanctions. Obviously, the threat of civil and/or criminal sanctions provides a strong inducement to achieve and maintain compliance with the environmental laws despite their overwhelming volume and complexity.
Other factors are also emerging as key drivers in the move towards regulatory compliance. For example, many in the baby boom generation are now moving into positions of leadership in our manufacturing sector. These new managers were raised in the era of environmental activism and are conversant with the arguments regarding the need to protect the environment. This heightened awareness has, in many instances, translated into a greening of the corporate consciousness. Further, individual employees within corporations are taking a more vocal and active role to further the concept of environmentally-conscious manufacturing. Frequently at a cost savings to the corporation, these employees are re-shaping the corporate consciousness in terms of environmental compliance. Despite critic's best efforts, these complex environmental laws and regulations are here to stay. Whether motivated by fear of civil or criminal sanctions, or a genuine concern for how business can contribute to a safer environment, corporations are faced with trying to ensure that they meet their obligations under the law.
The industrial compliance audit is one of the most effective tools for defining compliance obligations and subsequently monitoring compliance status. This paper focuses on the legal and technical aspects of industrial compliance audits and approaches the issues from the perspective of a business or industrial facility that is using outside law firms and consultants to perform the audit. This has become the standard approach since most manufacturing firms do not have the internal resources to perform the type of compliance reviews discussed. The use of the partnering model in place of traditional contractor/subcontractor relationships typically utilized in the compliance audit process is reviewed. Partnering is a consensus-building process commonly applied to large projects where differing objectives lead to adversarial relationships between subcontractors. However, as a fact-finding process, partnering between attorneys, independent environmental consultants, and plant or corporate personnel, also appears to be an effective means for successful conduct of the compliance audit and attainment of audit goals. Successful audits will meet client expectations and regulatory objectives when apparently contrasting services can be reconciled within the specific scope of work and partnering agreement. The partnering concept must be established at the beginning of a project, not when serious problems are encountered. Well-defined partnering plans help to meld the attorney-consultant-client team into a cohesive unit, each contributing to the team in their own specialty but working closely together to address site specific challenges. The audit partnering plan must have sufficient flexibility to allow the team to investigate unanticipated conditions that may environmentally, legally, or operationally impact the facility.
NATURE AND EXTENT OF INDUSTRIAL AUDITS
Compliance Audit Concepts
An industrial compliance audit is an evaluation of a facility's conformity with required standards of conduct such as: the laws and regulations that govern waste management, contracts, permits, operating procedures, and industry-wide standards. Where non-compliance is discovered, the audit mechanism should generate sufficient data to allow the facility to attain compliance.
Through a review of the regulations governing a facility's operations, its records, and an on-site inspection, auditors will ascertain the level to which a facility or process conforms with applicable regulations, permits, contracts or internal/corporate requirements, and operational policies. It is an environmental characterization of the facility at a given point in time- there are no guarantees of compliance in the past or the future. An appropriate compliance audit is a quality assurance tool which establishes a baseline against which a facility may measure itself at a later time.
An audit is a basic evaluation process through which the systems (procedures for achieving compliance) and compliance (actual performance) at a facility are examined. At one time a clear demarcation existed between compliance and systems audits; however, in today's regulatory climate, little distinction is made between the two types of audits. Typically, audits combine some form of compliance-oriented inspection with a systems-oriented record review or regulatory examination. For example, a facility operating under a U.S. EPA consent order may be required to submit to a Comprehensive Groundwater Monitoring Evaluation (CME). The CME is a specialized audit by the agency requiring detailed regulatory citations (by chapter and paragraph) for all aspects of the audit including operations, maintenance, and sampling. The facility may want to conduct an internal audit of a similar scope in advance of the CME to determine whether its groundwater monitoring system is being operated and maintained in accordance with the applicable regulatory criteria.
The multi-media compliance audit is an industrial or manufacturing quality assurance tool. No two industrial settings are precisely alike, not even within a single corporate entity. Industrial facilities will vary in size, in manufacturing processes, and in waste streams; and will vary in hydrologic, geologic, or geographic setting. Compliance audits, likewise, will vary, from plant to plant, although portions of the audit procedures may be the same. The audit scope of work or design will be shaped based on the audit strategy and will be further influenced by the size and nature of the facility, the industrial processes employed, as well as permits and governing regulations (state, local, or federal). The audit process must be both systematic, to address standard operational and regulatory conditions, and flexible to adapt to variations in compliance situations and between facilities.
From the standpoint of an environmental compliance audit, the components of the industrial process include, but are not necessarily restricted to, the importation and handling of raw or semi-finished goods; the production of a manufactured product; the generation, handling, and disposal of waste streams and contaminants; the impact on the local environment; and the legal or regulatory constraints placed on each of the components and on the process as a whole. The methods, components, extent, and scheduling of a compliance audit will be determined through discussions between the audit partners and the client as part of an overall audit strategy.
One of the most important aspects of any multi-media compliance audit is understanding of the purpose of the audit or what is to be accomplished. As suggested in the introduction above, one rationale for conducting an audit is to determine whether a facility is complying with relevant environmental laws and regulations. Compliance audits do not necessarily have to be comprehensive. For instance, instead of examining all of a facility's operations, management may use a compliance audit to examine a particular process or operation. This type of situation might arise where a process modification has occurred, say through the introduction of substitute raw materials, and it becomes necessary to understand the nature of the wastes being generated and the legal requirements for managing those wastes.
Frequently, environmental compliance audits are contractually required, especially for second tier suppliers. For example, a major manufacturer may obtain a representation that a supplier is in compliance with all applicable environmental rules and regulations. As part of a quality control program, the supplier may be required to conduct a compliance audit to establish that it is meeting its obligations under the contract. Alternatively, an industrial facility might negotiate and conduct an audit as part of a settlement with EPA or a state regulatory agency in order to off-set a penalty that has been assessed. Depending upon the reason for which the audit is being conducted, various legal and technical issues must be considered.
One of the most significant legal issues to be addressed in the audit strategy, is the need to protect the results of the compliance audit from disclosure to outside parties. Where for instance, the business has agreed to provide the compliance audit as part of a settlement with the EPA, this consideration may be moot. On the other hand, where a corporation is using the audit for self-evaluation, it becomes vitally important that everything possible be done to shield that audit from subsequent discovery and/or disclosure to outside parties. If a facility's self-evaluation audit report revealing various deficiencies observed during the audit becomes available, it could be used against the business in a governmental or "citizen suit" enforcement action, or in a private "toxic tort" lawsuit.
In addition to the disclosure issue, there are legal concerns regarding the proprietary nature of processes and/or operations being audited. Protection of trade secrets and other confidential business information depends in large measure upon the steps taken to shield that information from disclosure to third parties. Thus, as a business prepares to undertake an audit, it must clearly delineate for the audit team those processes which are considered confidential and for which special protections must be put into place. Finally, from the legal perspective, it is important to identify how the report will be used internally. This issue has a direct impact on how successful the business will be at keeping the audit report from being disclosed to outside parties such as the EPA.
Similarly, from the technical aspect, it is critical to have defined the purpose for which the audit is being conducted. First, and foremost, defining the purpose of the audit will facilitate the identification of the consulting expertise needed for the audit partnering team. For example, if the compliance audit will focus on records, correspondence, and permits, then little if any attention needs to be given to the consultant's ability to staff the team with personnel capable of sampling, testing, and properly characterizing the composition of the facility's waste streams. However, if the compliance audit is designed to verify not only whether the paperwork has been completed properly, but whether the wastes described in the paperwork have been properly characterized, then the consultant's expertise in this regard becomes paramount.
The ability to define the purpose of the multi-media compliance audit further enables the audit team to design the level of scientific inquiry needed. This becomes particularly important where, for instance, the business is conducting a compliance audit as part of a settlement with a regulatory agency. As an example, if the scope of the agreed upon audit calls for soil sampling to rule out the possibility of releases of toluene from storage tanks on the property, the sampling and analysis procedure should be narrowly designed to focus only on toluene and preclude other substances.
Finally, when scoping the purpose for which the audit is intended, and designing the audit to meet that objective, the obligation to take corrective actions to rectify any deficiencies that are revealed by the audit process must be firmly kept in mind. Where problems are detected during a compliance audit and no steps are taken to resolve those problems, a business may be accused of knowingly violating the law. This will certainly escalate any civil penalty assessed by an agency and perhaps cause the agency to convert what would have been a civil penalty assessment into a criminal investigation.
THE PARTNERING PROCESS
Partnering is a process to achieve a measure of cooperation and mutual assistance between typically disparate participants who are working together to achieve a common goal. Generally, partnering has been applied to large construction projects where subcontractors have differing objectives and (all too typically) adversarial relationships. However, as a fact-finding process, a formalized and structured partnering strategy which involves attorneys, technical consultants, and plant or corporate personnel is an effective means for the successful conduct of an environmental compliance audit.
Partnering is the team concept taken to the next highest level. Partnering stresses close working relationships, constant communication, and a commitment to achieving project goals. It is a proven method for controlling disputes and potential litigation. It has been widely applied on design-build projects and in construction, and is more than just the latest fad in quality management. Partnering concepts have been refined and honed on larger-scale government projects, and are now being applied to private sector non-construction projects.
Typical compliance audit projects are structured such that one of the team member firms acts as a prime, hiring specialty subcontractor firms to perform particular functions. The prime tends to unilaterally control the process; this structure is well-suited to smaller or single facility projects. On audits for larger facilities, multi-facility projects, or periodic and regular audits conducted as part of an overall corporate Environmental Management System (EMS), the typical prime/sub project management strategy may not be adequate to achieve the project goals.
Once the decision has been reached to utilize a partnering approach in the compliance audit, the relationships between the team members have to be established in the form of the partnering agreement. This is a formal document and, while it may serve a similar function as a scope of services attached to a contract (especially when the client is a signatory to the partnering agreement), it goes beyond a scope of work. The purpose of the partnering agreement (and, indeed, the very basis of the partnering concept) is to foster open communications and close working relationships; it moves the partners away from an "us verses them" attitude which is all too prevalent on many larger-scale compliance audit projects.
The basic partnering concept does not preclude one of the partners being dominant, depending on the needs of the project- i.e., in some cases the attorney may be the lead partner, in other cases the consultant, and yet in others the client corporate or plant personnel. The partnering agreement is the basic document defining the relationship between the parties. Partnering agreements generally have two major components; first, a mission statement which defines the philosophical basis for the partnering process and second, specific project related goals and objectives including a definition of the interrelationships between the partners. The latter portion of the agreement includes specific courses of action for both the conduct of the audit and dispute resolution.
Partnering Team Relationships
There is no ideal partnering team suitable to all audits. Typical audit teams should include an attorney, consultants, and corporate EMS personnel. Depending on the complexity of the audit, the location, or special needs, additional specialty attorney or technical personnel may be utilized. Depending on time constraints and schedules, several teams of attorneys and specialized consultant personnel may be utilized at different locations for multi-facility audits.
The relationships between the partners is clearly defined in the partnering agreement. This prevents the partners from overstepping the bounds of their expertise and establishes procedures for the audit. A major challenge in multimedia audits arises when partners, in all innocence, practice outside their field of expertise. While attorneys should not offer technical advice and consultants must not practice law or offer legal advice, the very heart of the partnering concept is predicated on the free exchange of ideas between the partnering team members.
Partnering Team Meetings
A critical factor in successful application of partnering concepts is a series of partnering team meetings; the number of such meetings being dependent on the size and complexity of the project. Held on a daily basis, the meetings provide an interchange of information and a discussion of the dayís findings where personnel have been working on disparate parts of the audit. The meetings allow for an honest appraisal (dissection) of the audit observations and procedures.
For the common goals defined in the partnering agreement to be achieved, inhibitions to active participation by the partnering team members must be overcome. Conversely, the individual egos and firmsí self-interests must also be suppressed if the partnering process is to be successful. In practice, this rarely happens in the first or even second team meeting. Most project level personnel are reluctant to criticize (or accept criticism from) those with whom them must closely work. Unfortunately, compliance audits rarely have the luxury of time available in construction projects where a free and low-key exchange can develop in the partnering team over a long period of time. To this end, many initial partnering meetings employ a facilitator to enhance the teamís efforts. Experience has shown that as the team works together on multiple sites, a facilitator is no longer required.
These team meetings are distinct from the typical compliance audit pre-audit interview and post-audit de-briefing meetings held with the plant or client personnel.
THE AUDIT TEAM
A typical audit process will have technical or scientific staff conducting the inspection portions of the audit and the attorney working with the technical staff and acting as intermediary between the client and consultant. The size of the audit team will depend on the size of the facility, schedules, and process complexities; the need for specialized technical expertise may rapidly expand the audit team. These factors are established in the meeting(s) leading to the development of the partnering agreement and during the initial partnering team meeting held at the beginning of the audit.
The audit team attorney should have a regulatory background with respect to the specific processes and federal, state, and local regulations. Technical personnel cannot practice law nor give legal advice, and from that standpoint alone, the attorney is a critical member of the audit team. Complex or issue-oriented audits frequently require detailed on-site attorney involvement. An attorney (outside counsel or corporate legal staff) has several general functions or blend of functions during an audit.
Protecting the Audit from Disclosure
Clearly, a key function of the attorney in the partnering process is to help ensure that the audit report, audit documents, and partnering team meeting notes are protected from disclosure to regulatory agencies and other third parties.
Historically, there have been two "privileges" that an attorney can assert to protect client information. The attorney-client privilege arises out of the relationship between the attorney and the client. Pursuant to this privilege, communications between the attorney and the client which the client intends to remain confidential cannot be communicated by the attorney to anyone else. The second privilege is known as the attorney work product doctrine. Under this doctrine, work that the attorney performs on behalf of the client in anticipation of litigation is protected from discovery by third parties, which would include regulatory agencies, absent extraordinary circumstances. Over time, this work product privilege has been extended to the work of parties such as consultants who are performing their work on behalf of the client as agents for the attorney. It is this latter privilege that the audit team should seek to invoke in order to protect the audit report from disclosure.
To invoke this privilege, the attorney should be involved at the earliest stages of the process. Ideally, after discussions with the client, the attorney will generate a letter advising the client of the need to conduct the audit and recommending that the audit team be assembled. This letter should recite the reason the audit is being conducted and that the potential for litigation exists for unknown environmental problems. The attorney should also initiate letters to all those who will be participating in the audit team, again specifying the reason for the audit and stating that their services are being retained to assist in the audit in anticipation of potential future litigation. Approaching the initial phase of the project in this fashion maximizes the ability of the attorney to argue at some future date that the audit is protected under the attorney-work-product doctrine.
Participation in the Actual Audit
The audit team attorney should examine in-progress audit results, and review draft and final reports. The attorney should offer dispassionate or arms-length reviews of the audit process during the partnering meetings and furnish legal advice to the client. The attorney will identify the controlling environmental regulations and permit restrictions and may participate in the records review process. Some attorneys may take an even greater active role in the audit process and conduct all portions of the records review as well as participate in other segments of the audit including the drafting of the audit report. The more active the attorney is in the various aspects of the audit process, the more persuasive the argument becomes that the audit report and related documents are entitled to protection under the attorney-work-product doctrine.
Since much of the audit process involves the technical, non-legal aspects (although not always so easily divisible) of the compliance of a facility, several general scientist/engineer functions or mixture of functions exist. The technical audit team may include outside consultants and/or corporate or facility environmental personnel.
Typical basic technical staff requirements include the expertise (process engineering, hydrogeology, chemistry or chemical engineering, etc.) of the audit team as defined in the initial project design or scope of work. Lack of experience in the specific industry or in conducting audits is a concern of most clients and the team should always include at least one experienced staff person who can either direct the activities or act in a mentoring capacity for other staff. As indicated above, specialized expertise may be required depending on the complexity of the facility processes, waste streams, or environmental conditions. Further, experience in the partnering process is an asset in one or more of the technical personnel assigned to the audit.
A familiarity and understanding of the controlling regulations are a necessity on audits, although this is generally the prerogative of the attorney or legal staff. However, regulations do not exist in a vacuum and the scientific or technical team member must have an understanding of the regulatory basis for the processes and design, waste handling, and environmental controls to fully judge the adequacy of such processes or controls. An understanding of applicable regulations does not allow the technical staff to give legal advice any more than an understanding of technical issues allows an attorney to design a remedial system. Too frequently, technical personnel tend to interpret regulations (i.e., practice law) in an illegal and misguided effort to help the client.
Registration or certification of technical participants is not always necessary. Several organizations and some states offer auditor certification based on experience and education. In many states, however, it is required that various portions of the remedial design or plans be stamped and approved by a professional engineer or geologist.
Corporate personnel generally have an intimate knowledge of a company's environmental requirements and philosophy, and can bring the cachet of corporate authority to the audit team. At the very least, corporate legal and environmental personnel can be expected to serve in an oversight or review capacity for the audit reports and documentation.
Facility personnel possess a depth and breadth of knowledge of plant processes, waste streams, and environmental controls that would be difficult for an outside auditor to match. Facility personnel are familiar with process scheduling, operations and maintenance, and plant records and files, and are invaluable to an auditor unfamiliar with a facility. For clarification and explanation, as well as health and safety reasons, many firms require a plant employee accompany outside auditors through the facility and be active participants in the partnering team meetings.
Plans and Schedules
The nature and extent of the audit procedures must be specified prior to undertaking the compliance audit. The audit team must clearly understand the clientís goals and the corporate environmental policy. A well-defined scope of work, including the clientís limitations on the audit, should be established in the contracts with the client, in an audit work plan, or through the partnering agreement which serves as the controlling document for the process.
Preparation of a work plan or detailed scope of work implies some level of pre-audit effort and planning. The client corporate staff, attorney, and frequently the facility environmental staff, will participate in reviewing iterations of the scope or work plan. A typical work plan or scope of work will contain several elements including, in general, the following.
Audit Purpose(s) and Limitations
The extent of the audit, that is the, facility processes or environmental controls to be reviewed, should be stated unambiguously. As important as a description of what the audit will include is a statement of the limitations placed on the audit- i.e., what will not be done. All audits have some limits and these should be succinctly indicated.
Audit Organization and Structure
The designation of the audit team including attorney, technical staff, and facility personnel, as well as lines of communication and authority, must be described. The role and responsibilities of each member of the audit team should be clearly defined.
A schedule for various facets of the audit including site inspection, records review, and preparation of the draft and final reports should be presented in the work plan.
Methods to be used in the audit should be described. They must be legally and scientifically defensible, but contain sufficient flexibility to allow audit personnel to investigate particular processes or environmental concerns. Audit procedures will vary from facility to facility and must be designed to conform with the specific needs of the client, and the facility operations and processes. The audit team typically will review federal, state, and local regulations controlling the operations and permitting of the facility prior to defining the audit procedures.
Formulation and distribution of a pre-audit questionnaire to the clientís plant and/or corporate personnel, and preparation of the checklist to be used for the audit are key to successful audits. Checklists should be site or process specific. For example, many firms begin with a computerized array of checklists (some in excess of 900 pages) which are edited and tailored to match the specific processes, chemistry and waste streams, hydrology and geology, and physical setting of a facility.
The reporting requirements or type of report needed by client must be specified in the work plan or partnering agreement. Further, the agreement or work plan will address interim reports and dissemination or protection of results, definition of the level of confidentiality of findings and results, as well as use of correspondence and reports.
Arrangements or notifications for the audit typically are directed through corporate environmental or legal staff. Unlike EPA, the compliance audit conducted for the client is rarely an unannounced or surprise inspection. Corporate staff can supply contact points at the facility, provide access to corporate records, and aid in processing the request for facility data. Involvement of corporate personnel is an acknowledgment of the support and active participation of upper management in the audit process.
The plant or facility should be informed, in advance, of the dates and times for audit. Again, unlike EPA compliance audits, the client-initiated audit typically is not an adversarial process and the facility personnel are generally willing to cooperate in the processes. Arranging the audit schedule with the facility plant further allows inspection of specific processes or operations which may be infrequent. Finally, advance notice allows the plant time to produce requested data and previous reports, and complete the pre-audit questionnaire.
Typically, voluntary client directed audits do not involve state or federal regulatory agencies. However, if the facility is operating under a consent order or there are permit restrictions, it may be necessary to notify the regulatory agencies of an impending audit. It may be necessary to split samples with the agencies or to have regulatory personnel observe the audit or sampling processes. These issues should be assessed by legal counsel.
Project initiation meetings or conference calls at the corporate or management level typically precede an audit. An attorney should participate in order to maximize the opportunity to claim in the future that the audit results are privileged. The audit strategy, scope-of-work, and lines of communication are defined at these meetings. Such meetings are also important in order to obtain corporate cooperation and concurrence with procedures, and assurances of staff and facility cooperation. These meetings are distinct from the audit partnering meetings held on a regular or periodic basis during the conduct of the audit and the report preparation process.
A pre-audit kick-off meeting typically is held at the facility with the plant manager and/or environmental personnel. Plant personnel are briefed on the audit scope of work and limitations, and the nature and extent of audit. Plant safety procedures to which audit personnel are subject are reviewed. The pre-audit briefing typically reviews the checklists to be used, permits, compliance records, previous audits, or other reports and the completed questionnaire. It is during this meeting that the audit team will arrange for plant personnel interviews and guides.
A post-audit review meeting or de-briefing is typically conducted with facility personnel. Since audit results may be confidential, participation in the meeting generally is limited. Observations and issues noted during the audit are reviewed and immediate action items or problem areas are discussed. Any additional data needs or records may be discussed at this time.
Facility Inspection and Walk-through
Facility inspections must be defined in strategy meetings prior to the inspection, must be structured such that all aspects in the scope of work are covered, and, at the same time, maintain sufficient flexibility that auditors can investigate issues encountered that are within the scope of the audit but that are nevertheless unexpected.
Inspections may range from a simple walk-through to a thorough and detailed examination of manufacturing production, environmental controls, waste streams, O&M, and waste handling processes. The inspection is conducted from both a scientific/engineering perspective as well as a legal (regulatory) position. Environmental control and process equipment, and operations may be examined and assessed in terms of efficiency and effectiveness, and, in some cases, costs. Environmental and facility processes, waste streams, storage, shipping, and other activities may be observed and compared to standard practices, company requirements, regulations, and/or permits as defined in the scope of work.
Flow charts, schematics, and blueprints are almost always used, when available. The auditors may check equipment and process records, and the level and frequency of internal inspections and verification activities. Environmental outliers or non-permit processes and equipment may be defined and highlighted during the facility inspection process.
Interviews are frequently held with plant and corporate personnel to define processes and audit-related issues, and discuss process flow sheets and actual facility practices. Where time permits, interviews should be conducted with management and production employees, and with plant and corporate environmental personnel. Regulatory agency personnel should only be interviewed if required in the scope of work and with the prior knowledge of the client. The partnering agreement will typically define the role of the audit team in the interview process.
Sampling may be required by the scope of work, or recommended during conduct of the audit, and is conducted in accordance with appropriate quality assurance/quality control procedures. Split or duplicate samples may be required. While flexibility is important, the anticipated waste streams or materials to be sampled, the frequency, and number of samples should identified in advance to assure that appropriate sampling equipment, containers, and documentation (lab orders forms, chains-of-custody, labels, etc.) are readily accessible so sampling can proceed with little delay.
The records review is a vital part of any compliance audit. Most regulatory environmental and operational controls require detailed record keeping. The nature and extent of the records to be reviewed should be defined at the project initiation meeting or pre-audit briefing. Review of records maintained at locations other than the facility should be arranged. Review of applicable regulations and permit limitations should be included in the initial records examination.
The records review should be limited to records necessary to conduct the defined scope of work, while maintaining flexibility to carry out the audit strategy where deviations in the audit plans are necessary. The review should include process flow-sheets, maps, diagrams, schematics, etc. Internal record keeping, record maintenance, and tracking in terms of regulations and permits should be examined, as should required (company) practices, operations and maintenance records, and Title III and emergency response plans and files. Facility compliance in terms of meeting/adhering to schedules, reporting, testing, permit completion, and renewals, as well as consent orders typically are reviewed.
Checklists and Audit Records
Accurate record keeping and note taking are important aspects of the multi-media compliance audit. The basis for audit conclusions frequently must be explained to management and someday may have to be defended in court. The data and conclusions must be reproducible and based on detailed technical and legal observations, accurately and systematically recorded. Most firms utilize checklists as guides to the audit procedures and for the recording of compliance audit related data.
Records forming the basis of audit include the pre-audit questionnaire and audit checklist; field notes and notebooks; photographs; sampling data and forms; diagrams, charts, schematics and blueprints; and reproduced plant documents and files.
The pre-audit questionnaire is part of the audit record but is primarily an informational form generated or completed by the facility. The questionnaire introduces the audit team to the facility and processes, defines existing and proposed environmental controls and past compliance history, and enumerates the nature and extent of records.
The use of checklists has become generally standardized in the audit industry. Checklists establish a rigorous format for both the conduct of the audit and data recording. Many firms utilize generalized checklists which are then adapted to the facility, process, and expected conditions. Typically, checklists will lead the auditor through a step-by-step review of the process and environmental controls at a facility. These portions of the checklist are generally the responsibility of the technical/scientific audit personnel. As indicated previously, many checklists contains space for regulatory citation, by chapter and paragraph number, of the controlling regulations. Those technical portions of the checklists requiring a legal judgment or interpretation on compliance are the responsibility of the audit team attorneys.
Records such as checklists, sampling data, analytical results, notes, etc. must be fully documented and include, at a minimum, dates, times, auditor names, and witnesses. Changes should be initialed and dated. Observations, comments, and notes should be business-like and succinct since the checklists and field-notes will be included in the final report and, further, may be produced if required by a regulatory agency or in the legal discovery process. Copies of facility records should indicate the origin of the document and should be initialed and dated. All original documents must be returned to the proper location in the facility files.
The compliance audit report must adhere to the format selected as part of the audit strategy and thus designated in the scope of work, partnering agreement, or in the work plan. Where verbal reports are required, the report should be properly outlined and supported by documentation to assure completeness and reproducibility. Frequently, written reports undergo several iterations or drafts with several levels of review prior to submittal of final report. Whether written or oral, the report should not exceed the scope of work in terms of original limitations on the examination of specific processes, waste streams, or portions of the facility audited.
The report review process may include evaluation by the audit team, by outside consultants, attorneys, or by corporate environmental, facility, and legal staff. Attorney reviews are especially crucial where there is a need to establish attorney-client privilege and/or attorney-work-product privilege in an effort to protect the report against disclosure to third parties, including regulators. These conditions should be defined in the partnering agreement or work plan.
Written reports typically include supporting records and documentation, photographs, maps, and schematic or flow diagrams; plant documents including permits, correspondence, manifests, etc. that will support conclusions of audit; completed audit checklists and questionnaires; interview notes; field notes and observations; and any QA/QC documentation when sampling and analytical work has been conducted.
Depending on the scope of work, the audit report may contain conceptual or actual design for corrective action and/or preventive measures, and plans and schedules for implementation of these activities. Measurement levels, progress milestones, and attainment goals for any corrective action or preventive measures may be developed and presented in the report. The technical or legal priorities, or ranking, of deficiencies and the corrective or preventive actions may also be included in the final report. The report should address short-term as well as long-term compliance activities, and identify individual implementation and evaluation responsibilities at both a corporate and facility level. Whether these items are to be included in the report should be resolved at the planning stages and written into the scope of work or work plan.
Finally, the audit report should be marked privileged and confidential to reinforce the intent of the client to keep the report confidential.
SUMMARY AND CONCLUSIONS
The environmental multi-media audit is an important management tool for determining the nature and extent of facility compliance with regulatory requirements, industry standards, good management practices, and corporate environmental and operational polices. Audits are conducted to meet regulatory constraints, avoid civil and criminal penalties, adhere to internal and external quality assurance requirements, and respond to the growing awareness and pressures of good corporate citizenship.
The primary facets of the audit process are the determination of the level of non-compliance and the generation of sufficient data to allow the facility to achieve compliance. To this end, a partnering approach is advocated since an attorney-consultant-client team utilizing partnering principles appears to be one of the most effective solutions to these challenges, enabling the compliance audit to remain a useful management and environmental tool. Well-defined partnering plans will meld the attorney-consultant-client audit team into a coherent unit, each contributing their specialty but working together to define and ameliorate specific audit challenges. The partnering agreement which defines the relationships between the partners must have sufficient flexibility to allow the team to investigate unanticipated conditions that may environmentally, legally, or operationally impact the facility.
The compliance audit will review all or part of the processes and records associated with the handling, of raw or semi-finished goods; the production of manufactured products; the generation, handling and disposal of waste streams and contaminants; the impact on the local environment; and the legal or regulatory constraints placed on each of these components. Prior to conducting the audit, the strategy or purpose of the audit must be well-defined. The compliance audit does not necessarily have to be comprehensive; audits may be limited based on regulatory, manufacturing or process, legal, technical, and/or cost constraints. Evaluating the ramifications of unwanted disclosure of the audit results to third parties, and working to protect against such disclosure by invoking the attorney-work-product doctrine are integral parts of an overall audit strategy. As part of the audit strategy, defining the audit scope will further direct the nature and level of legal and scientific efforts required.
Archetypal audit teams include legal, scientific, and plant or corporate personnel. The size of the team depends on the size of the facility, schedules, process complexities and the need for specialized technical or legal expertise. To maximize the benefit of the work-product privilege, attorneys should have an active and significant role in the audit. Technical personnel typically conduct the physical aspects of the audits and must have the technical expertise, experience, regulatory knowledge, and required certifications. Corporate or facility personnel are key participants in an audit since they possess an unmatched depth and breadth of knowledge of plant processes and environmental controls.
Some audits fail to satisfy client expectations or accomplish the desired objectives when precise services either are not specified or when the specified scope of work is exceeded. The partnering process will help to diminish these challenges. Further, because unprotected audit reports can be obtained through the litigation process, absent a regulatory audit privilege, many industrial clients continue to view compliance audits with distrust. The partnering process with attorneys as key elements on the audit team appears to be the solution to this challenge.